$2 Million for External Contractors at California Stem Cell Agency

California's stem cell research program next Monday will review the roughly $2 million it spends annually on outside contractors, but don't expect any fireworks.

The subject will come before the Governance Subcommittee of the agency's directors at a meeting scheduled only for one hour.

Since Bob Klein left as chairman of the $3 billion agency in 2011, the number of contractors and their cost have dwindled significantly.  In recent years, the Governance Subcommittee has rarely raised serious questions about the contracting.

The latest list of contractors and the size of their contracts has not yet been posted by the agency on its Web site. But here is a link to the most recent list that has been made public. It is from December of last year.

Also on tap is proposal to boost a contract this year with The Mitchell Group of Agoura Hills, Ca., from $249,000 to $345,000.  An agency memo said,

"The programmers supplied by Mitchell work on the CIRM Grants Management System and on the CIRM public website. Under CIRM 2.0 and the Strategic Plan, CIRM’s Grants Management System has needed extensive renovations to keep pace with the accelerated pitching machine. CIRM’s public website has also required renovations to display the new CIRM Funding Opportunities and to meet the requests for advanced navigation and graphics." 

The public will have a chance to listen to the meeting via a toll free audiocast. Interested parties can participate at teleconference locations in Oakland and La Jolla. More details can be found on the meeting agenda.

A $2 Million Bill: Outside Contracting by California Stem Cell Agency

The $3 billion California stem cell agency this week posted a list of its outside contractors, who range from a a $25,000 stem cell licensing consultant to a $550,000-a-year law firm.

The agency expects to spend $2 million during 2013-14 on outside contracting, down from $2.9 million in 2012-13. This week's report covers the 2012-13 year.

Outside contracting is the second largest item in the agency's budget, which is slated to spend $17.4 million this fiscal year for operational expenses, up 5 percent from last year's spending. The largest amount, $12.2 million, goes for salaries and benefits. (For more on the budget, see here, here and here.)

Topping the contractor list is the law firm of Remcho, Johansen & Purcell of San Leandro, Ca., which had the $550,000 contract. CIRM, as the agency is known, reported that Remcho came in under budget by $95,595. That contrasts to some previous years when the firm, which has represented the stem cell agency since its inception, required additional cash on top of its original contract. James Harrison of the Remcho firm is its face at the agency and is designated as the outside counsel to the agency's governing board. In all, the agency is slated to spend $2.2 million on legal expenses, including in-house work.

David Earp is the stem cell licensing contractor. He was paid only $13,125 on his $25,000 contract during 2012-13. It is unclear whether he will be paid the $11,875 balance. Earp was chief patent counsel and senior vice president for business development for Geron before it dropped its stem cell program. Earp was heavily involved in the $25 million loan that CIRM made to Geron in 2011. In February 2008, he testified before CIRM about its then proposed loan program.

The list of contractors included $200,000 to the AlphaMed Press of Durham, N.C., as seed funding for a stem cells translational journal, $156,434 to Hyatt Hotels for the meeting of CIRM grant recipients, $250,000 to Kutir Corp. of Newark, Ca., for informational technology services and $290,000 to the Mitchell Group of Woodland Hills, Ca., also for information technology services.

The list of contractors will be presented to the CIRM governing board at its meeting next week. The list does not usually trigger any significant discussion.

Merksamer Makes Only Bid For Stem Cell Agency Lobbying Contract

Only one of California's lobbying firms is interested in working for the California stem cell agency – at least interested enough to put in a bid.

However, that is likely more of a function of the small size of the contract – $65,000 – and the entrenched nature of CIRM's existing lobbyist – Nielsen, Merksamer, Parrinello, Gross & Leoni LLP – one of the state Capitol's larger lobbying firms with $5 million in billings last year.

The firm touted its longstanding connection to the $3 billion agency in its 21-page proposal in response to a CIRM RFA this spring. The firm has been with CIRM since 2005.

Nielsen Merksamer's proposal also noted a couple of other interesting aspects of the continuing arrangement. CIRM will run out of money for new grants in 2017, and Nielsen Merkasamer said,

“Furthermore, as a premier legislative advocacy and (Nielsen's italics) ballot measure law firm, Nielsen Merksamer can actively and effectively assist CIRM as it contemplates returning to the voters for additional funding.”

The proposal also suggested that it can conceal information that normally would be public record. The firm said,

“Another unique advantage offered by Nielsen Merksamer is that, unlike the vast majority of lobbying firms, since we are a full-service law firm, our relationships with our clients are subject to the attorney-client privilege.”

CIRM used such a technique in 2012 and 2008 in matters involving its budget and PR advice.

Nielsen Merksamer also said,

“(N)o one understands CIRM’s 'total picture' better than Nielsen Merksamer. Not only has Nielsen Merksamer been representing CIRM before the Legislature for the past decade, but Nielsen Merksamer was also one of the principal drafters of the aforementioned Proposition 71—which brought CIRM to life. The depth of Nielsen Merksamer’s familiarity with, and understanding of, CIRM’s mission and structure, the challenges it faces, and the promise it holds simply cannot be matched by any other legislative advocate.”

The firm said it would not need the $65,000 offered by CIRM but would charge only $49,200 annually, about the same as it has been paid for several years. Steve Merksamer and Gene Erbin, who drafted portions of Proposition 71, would handle most of CIRM's affairs. John Moffatt and Missy Johnson would also be available.

The firm's proposal outlined several instances where it successfully killed legislation opposed by CIRM. You can read about them in their proposal below.

Merskamer 2013 Lobbying Proposal by DavidJensen

Stem Cell Agency and its $2.4 Million Legal Costs: Proposal to Add Staff Lawyer Slips Away

The California stem cell agency has dropped a plan to add an additional lawyer to its staff on top of its $2.4 million yearly legal budget.

The proposal was eliminated from the agency's spending plan for the fiscal year beginning in July after it ran afoul of complaints in April from Art Torres, co-vice chairman of the agency, that legal spending was "awfully bloated."

At the time, CIRM's President Alan Trounson and general counsel Elona Baum argued, however, that the position was needed to protect CIRM's intellectual property. They said that grantee institutions were failing to take necessary steps to protect the IP and were putting CIRM "at risk."

The discussion occurred during a public meeting, but was settled behind the scenes before last month's approval of the budget by the CIRM board of directors. Instead of containing $221,000 for salary and benefits for another lawyer, the budget contained $203,000 for an external contract for the IP legal work.

The issue of hiring additional staff has implications beyond the most obvious. CIRM is laboring under a legal budget cap that hampers its operational flexibility. Plus the agency will move into a shutdown mode in about five years unless it derives a new source of financing.

During the April discussion, Baum cited a "very in-depth memo" justifying the addition of an attorney but did not present it at the time. The California Stem Cell Report subsequently asked the agency for a copy. The first version that CIRM supplied consisted of a single page and was mostly a list of tasks. It was also heavily expurgated by CIRM, although the agency did not initially disclose that information had been removed. The actual document turned out to be two pages long but still was something less than in-depth.

CIRM said the information was removed under attorney-client privilege. CIRM spokesman Kevin McCormack said it contained "reflections and advice about particular legal issues" from Baum to Trounson.

Our take: It is poor management to place privileged information in what should be a routine budget justification for adding staff. The result is a breakdown in openness on the part of the California stem cell agency. It is not the first time that CIRM has hidden information under attorney-client privilege. In 2008, the agency concealed public relations advice from a New York firm using that rationale. The matter involved an Australian researcher "under investigation for improprieties who worked in the stem cell laboratory run by CIRM's incoming President Dr. Alan Trounson," CIRM said at the time.

A final note on budget matters at the May board meeting: With little discussion, the board approved an overall budget of $17.9 million for coming fiscal year, an 8.5 percent increase over the estimated $16.5 million spending for the current fiscal year. The budget calls for a handful of new hires, raising the size of the staff of the $3 billion agency to the equivalent of 59.

CIRM Chairman J.T. Thomas also told the board the agency is assured of cash for its operations and research funding through the end of this year. CIRM relies on money borrowed by the state – general obligation bonds. However, under an arrangementarrived at last year, the funding is being provided through short-term borrowing – commercial paper. The state expects to offer another round of bonds this fall, but it is not clear whether CIRM bonds will be included. Gov. Jerry Brown is adamant about reducing the cost of state borrowing, which has skyrocketed in recent years.

Here is a copy of Baum's memo.

CIRM IP attorney job description

$2.4 Million for State Stem Cell Lawyers: Too Much or Not Enough?

The California stem cell agency is spending $2.4 million a year on lawyers, a figure that one agency director has described as "awfully bloated."

More than one dollar out of every ten that CIRM spends on its operations goes for legal advice, and the subject came up at a meeting last month of a meeting of its directors' Finance Subcommittee. The issue triggered a sharp exchange revolving around a proposal to hire an additional attorney to deal with intellectual property issues.

In the next fiscal year, the agency expects to have legal team of six (four lawyers and two administrative assistants) on board out of a total CIRM staff of 60. It also has three outside lawyers or firms under contract at an annual cost of $1.1 million. Overall, CIRM is spending 13 percent of its $18.5 million operational budget on legal matters. Its budget for legal services will increase $50,000 next year.

CIRM's proposed budget includes a cut in external legal contracts to help finance the addition of another staff attorney. Elona Baum, CIRM's general counsel, is also advancing an additional proposal this month that would pay for another staff attorney indirectly through CIRM loans to business, thus avoiding problems with the 6 percent legal cap on the agency's budget.

At the April 2 meeting of the Finance Subcommittee April 2, Art Torres, CIRM's co-vice chairman and an attorney himself, vigorously questioned the addition of another lawyer. In an exchange with Baum, Torres said,

"Well, wait a minute. We already have you. We have Ian. We have Scott. We have James. What more do we need to add more to our legal services budget, which looks awfully bloated."

Baum and CIRM President Alan Trounson defended the addition of a staff lawyer. Both cited the need to protect intellectual property and promote commercialization of CIRM-funded inventions. Trounson and Baum said grantee institutions are failing to do so. Consequently, they said, the stem cell agency is "at risk."

In one exchange, Torres said,

"There are current counsels within the UC and Stanford and USC that ought to be taking care of this for their grantees."

According to the transcript, Trounson replied,

"Well, they're not – you know, this is not being taken care of in a way which is -- which is -- which is reasonable to the organization here. and I think it's putting the organization at risk...."

Baum cited an "a very in-depth" memo that she said justified hiring an additional attorney. Following the meeting, the California Stem Cell Report asked for a copy of the memo.

It consisted of a one-page job description. Dated March 5, it was written by Baum and directed to Trounson. It described the duties of the new lawyer but not the justification for hiring the person. In addition to IP work, duties including 350 hours of work to "provide increased certainty of commercialization rights," 250 hours for due diligence in the grant award process, 200 hours of work on genomics and reprogrammed adult stem cell efforts. The memo calls for 690 hours on business transactions including 150 hours to administer the loan program and 200 hours on agreements with companies seeking to relocate to California.

Much of the committee discussion focused on the need for legal expertise on IP issues, which Baum said the agency lacked.

CIRM first took a crack at hiring an IP attorney in 2008, seeking both a consultant and a fulltime staff attorney. A fulltime staffer was never hired. However, Nancy Koch was hired as an IP consultant for six months at $150,000 and has been with the agency since. Koch was deputy general counsel of Chiron Corp. and its successor Novartis Vaccines and Diagnostics, Inc. During 11 years at Chiron/Novartis, Koch was responsible for a wide range of intellectual property matters including litigation and licensing. Her current contract is for $250,000 for a year but would be reduced to help provide cash for a staff attorney. Baum said last month that Koch is primarily involved now with collaborative arrangements with other countries.

Our take? It is commonplace to be critical of lawyers, their profession and their numbers. CIRM, however, is an unprecedented agency operating in uncharted scientific waters with an enormous reponsibilility for generating a return for the state. It is engaged with firms that will be negotiating aggressively to cut the most beneficial deal possible for themselves – not for California taxpayers, who are paying the freight. CIRM must protect the state's interests. And first-rate IP lawyers do not come cheap. In 2008, the agency was lowballing when it offered $150 an hour. If CIRM fails to generate a financial return for the state, critics are sure to say that it was overmatched legally when it dealt with the private sector. On the other hand, the agency is sure to be battered by contemporary critics for its battalion of barristers.

The issue of a new hire went unresolved last month, and it was turned back to a handful of directors and staff to solve. CIRM directors will deal with it again at their meeting later this month.

A final footnote: Philip Pizzo, a CIRM director and dean of the Stanford medical school, was part of the meeting during which Trounson identified Stanford as failing to take of care of some of its IP responsibilities. Pizzo said towards the end of the meeting, "If Stanford is going to be referenced, we ought to be clear that we've got all the facts correct about what Stanford does or doesn't do."

Pizzo said Stanford does a "great job."

(An earlier version of this item said incorrectly said that CIRM would have six lawyers on staff next year.)